The Mystery of Cannibal Capitalists and Ecuadorian Entrepreneurs

By William K. Black

This column was prompted by an unusual source for me.  Cuenca High Life is a site for ex pats living in Ecuador.  It often discusses serious issues of national importance.  The three issues a recent volume discussed are all important economic issues and they have prompted a fourth economic issue I will discuss in this column.

My overall theme is that Ecuador’s President Correa is a serious economist and that this makes him unpredictable for those who assume that ideology determines his policies.  Paradoxically, it is the apex American parasites – the largest financial institutions and their lawyers – who have cannibalized capitalism by becoming ideologues.

Opening the Yasuni Preserve for Oil Exploration

The neoclassical economic response to environmental problems is to create tradable credits that will generate a market.  Ecuador has substantial oil reserves in the Yasuni preserve.  Ecuador is a developing nation that could use the revenues from developing that oil.  As I have explained in prior columns, Correa’s budget priorities are precisely those recommended in the Washington Consensus – education, health, and infrastructure.  The resultant economic growth, reduction in poverty and inequality, and reversal of Ecuador’s substantial loss of population to emigration has made Correa the most popular head of state in the Americas.

The Yasuni preserve is a terrible place to produce oil.  It is an environmentally sensitive area that will suffer serious damage if things go well and horrific damage if there are serious oil leaks.  It is an indigenous area and oil development will cause serious problems with indigenous peoples even if things go very well.  Correa is not merely an economist, but a creative one.  He came up with the optimal solution – the rich nations should pay Ecuador to never produce oil in the preserve.  The rich nations would get tradable credits in return.  Naturally, though almost everyone agrees that it is a great idea that should be adopted in many parts of the world the richer nations refused to agree to the plan.

Correa Champions Ecuadorian Entrepreneurs

“Continuing a theme he began a week earlier, Rafael Correa said bureaucractic requirements for starting a business in Ecuador are overly burdensome and that the process needs to be streamlined.

He made the comments during his weekly television broadcast on Saturday. Last week, he said that excessive requirements in all areas of government were an attack on the rights of Ecuadorians and announced plans to reduce paperwork and put more official interaction between citizens and the government online.

Correa showed a chart showing that it takes, on average, 56 days to start a business in Ecuador compared to three in Chile. Another graphic showed that starting a business in Ecuador requires 13 steps while it only takes five in Chile and seven Uruguay.

‘This is outrageous and needs to change,’ Correa said. ‘We need to get beyond the mentality of a bureaucracy that wants to control everything and that puts up unnecessary obstacles for citizens who want to invest in their country. We need to see how other countries do this and follow their good examples.’

He said that he has asked Ecuador’s minister of production Richard Espinosa to develop streamlined rules for new businesses and to work with the national assembly to develop laws to implement the changes.”

The economist who is best known for championing these ideas is Hernando de Soto of Peru.  De Soto has students who study how long (and how many approvals) it takes to start a small business without bribery.  The results have often been horrifying.  By reducing burdens to joining the conventional economy Correa will spur growth and employment and reduce corruption if his government delivers on his promises.  (I am proposing means an Ecuadorian university could champion (and measure) to deliver such improvements.)  De Soto is a conservative economist best known for his book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.  I highly recommend the book.  Correa’s enthusiasm for entrepreneurs is a product of good economics and common sense, not an ideological betrayal.  

Alleged Anti-Employee Control Fraud by a Chinese Firm in Ecuador

Anti-employee control frauds fail to pay employees their full compensation and/or subject them to harmful work conditions.

“A court in Manabi Province has impounded 28 dump trucks and tanker trunks belonging to a Chinese company in a labor dispute. According to the judgement, Tiesiju Corporation failed to fully compensate employees when it abandoned work on a Chone River water project last month.

Santiago Vera, union leader for Tiesiju workers, says the management refused to work with the union to find solutions to problems. ‘They are very anti-union and prefer that workers have no organized protection,’” he said. ‘Ecuador needs to be very careful about bringing Chinese companies into the country. They have a culture of not respecting the rights of workers.’”

The reason that “culture” exists is that the lack of law enforcement in China produces a “Gresham’s” dynamic in which cheaters gain a competitive advantage which makes markets perverse and drives good ethics from the marketplace.  Ecuador’s crackdown on such practices, therefore, is not anti-business.  Regulatory cops on the beat are essential to the success of honest businesses.  De Soto has emphasized this point in a 2011 article.

“Markets were never intended to be anarchic: It has always been government’s role to police standards, weights and measures, and records, and not condone legalized sleight of hand in the shadows of the informal economy.”

Cannibal Capitalists, MERS and Foreclosure Fraud

In contrast to Correa’s embrace of sophisticated economic policies that defy typical ideological labels, which produce many cases of de Soto and Correa agreeing on policies, apex American capitalists have become so ideological and parasitical that they have put at risk one of the great triumphs that de Soto has argued explains America’s historic success.  It was this primitive capitalist cannibalism that prompted de Soto’s 2011 article: “The Destruction of Economic Facts.”  The unforgivable sins of this great success – our public system of record of title and property descriptions – are that the system is successful, efficient, and public.  That is unforgivable because it falsifies their ideologies.  You can feel de Soto’s pain as he is staggered by the stupidity of the cannibals.

“The result was the invention of the first massive ‘public memory systems’ to record and classify—in rule-bound, certified, and publicly accessible registries, titles, balance sheets, and statements of account—all the relevant knowledge available, whether intangible (stocks, commercial paper, deeds, ledgers, contracts, patents, companies, and promissory notes), or tangible (land, buildings, boats, machines, etc.). Knowing who owned and owed, and fixing that information in public records, made it possible for investors to infer value, take risks, and track results. The final product was a revolutionary form of knowledge: ‘economic facts.’

Over the past 20 years, Americans and Europeans have quietly gone about destroying these facts. The very systems that could have provided markets and governments with the means to understand the global financial crisis—and to prevent another one—are being eroded. Governments have allowed shadow markets to develop and reach a size beyond comprehension. Mortgages have been granted and recorded with such inattention that homeowners and banks often don’t know and can’t prove who owns their homes. In a few short decades the West undercut 150 years of legal reforms that made the global economy possible.”

So I ask again, why do the U.S. and U.K. media label the highly successful and pragmatic Correa a “leftist” (and assume that “leftist” views should be dismissed) while treating the vastly more ideological and self-destructive cannibals as if they were ideology-free technocrats?  It’s bad journalism that reveals the media’s ideological blinders.  The media are blind to their blinders. Correa continues to display his mastery of real economics while the ideologues worship dogmas that have been repeatedly falsified.